According to New York's top startup investing firm, things are looking a bit unstable in the private markets. Specifically, First Round Capital notes that every nine days last year, a new startup received a $1 billion+ valuation, and that some of these so-called "unicorn" companies will be exposed as frauds.

"We believe that some of them will be exposed as nothing more than horses with sticks taped to their heads," the firm's lead partner, Josh Kopelman, wrote.

Early stage startups have gotten eye-popping valuations lately too. Kopelman says seed-stage valuations have increased 20% year over year over the course of the past decade. And with seed valuations soaring higher and higher, what would have been a 3X return for funds in 2007 is about a 1X return today.

He likens the current startup market to a Black Jack table. Normally, odds are you have a 52% chance of losing if you play your cards right. But lately, the startup world feels like the odds are really stacked against investors and that 52% is more like 80%.

First Round Capital isn't the first firm to sound the alarm. Benchmark's Bill Gurley has also said we're headed for a bubble and startup accelerator leader Sam Altman says startups are burning scary amounts of money right now.

But this LP letter offers particularly good insight into the current frothy market, so it's worth reading every line. Buckle up!